Evaluating Market Expansion Strategies: Vertical or Horizontal?

With the recent turmoil in the Economy, deals and opportunities are soon to follow as astute business persons hunt for opporunities for consolidating their position by moving into spaces vacated by fallen players. Easiest venues for expansion are horizontal, as they encompass your core area of expertise and help topline growth. Cost efficiency benefits are critical components in evaluating a horizontal expansion opportunity. Horizontal expansion strategies can be further broken out into geo-demographic expansion versus channel expansion strategies, but all these still entail doing what you are good at in new venues. Efficient marketing and distribution networks are important to the success of horizontal strategies.

Vertical expansion on the other hand is a trickier proposition as it entails venturing into an area you are only familiar with but lies outside your core competitive advantage, but done correctly will significantly impact your bottomline. Synergy benefits are very important for vertical expansion opportunities. Operational excellence too can go a long way in making a vertical expansion strategy very successful.

Industry lifecycle is also a big determinant of the feasibility of one versus the other. Growth industries make horizontal expansion very attractive and important for market leadership, whereas for mature phase industries horizontal expansion may not offer as much ROI as margin improvement through vertical expansion.